Assalamualaikum beautiful people, welcome to my participation in #steemcryptochallenge.

I am been doing the posts on DeFi, its mechanism and its details, from few days. Today I am gonna write about some risks in DeFi, and I will try to answer @steemitblog's question. "Are you feeling positive or negative about the future of DeFi?"

Source

Are you feeling positive or negative about the future of DeFi?

I will try to answer this question in end of post, but before we will take a look on risks in DeFi.

DeFi Risks:

We would separate these risks. You have your Financial risks, you have your Technical risks and you have your Human risks.

Financial Risks:

Try understanding with this example.If I buy any cryptocurrency, suppose I buy Ethereum no matter what type of investment I have. So, if I buy at $220 and it drops to a $120 I have lost my $100. I have the financial risks that I have with any sort of investment, it does not change because it is decentralized. Here is another part of financial risk is, that we are purchasing a currency and exchanging it in another cryptocurrency. An example is, I take my ETH and I turn it into DAI, I have 200 DAI which ideally worth 200 dollars. If I take these 200 DAI and put it into a COMPOUND loan, which is earning me 5 percent, at the end of one year I have 215 DAI. Ideally I want that to be worth 215 dollars, but let's say something happens with price of ETH, something happens and 1 DAI is only worth 80 cents instead of dollar. My 215 DAI is only worth 152 dollars. So by earning five percent DAI, I have more DAI than I had to start with. But it worth less than it was.

Those was some examples of financial issue, the biggest one is you can loose your money because the value goes down. So I have to accept this issue before entering in DeFi, I have to understand these all issues. If you invest in any cryptocurrency it doesn't mean you will get profit, because there is no guarantees with cryptocurrencies for going up tomorrow or next day.

Technical Risks:

Smart Contract Code:

As you know Ethereum and it's chain is just a code. Now if I do any smart contract to wrapping my crypto currency, I will do with codes, and codes is written by humans and it's potentially fallible, it can be hacked.

An example for this is. If I put my DAI or my ETH or whatever into some sort of smart contract with the idea that it's going to be exchanged for some other crypto currency and someone figures out a way to exploit this smart contract and take my DAI out and send it to their wallet. I am probably never going to see it again, because once it gets to someone's else's wallet it's gone.

Oracles:

The oracle risk can somewhat be a technical basic and some of human base, whatever. Let's say that I am involved in some sort of smart contract, where I get liquidated. There are companies help to take care of this is what Oracle's are we using and what can go wrong within that Oracle to cause some other issue within a smart contract or code.

These are some of technical issues, I know there can be lot more.

Human Risks:

SIM Swapped:

Then we have Human issue. This is like, if I have everything stored on my phone and I get SIM Swapped. That means someone basically steals the SIM information from my phone and therefore has the ability to get into my soft wallets and can go send themselves a Bitcoin or send themselves Litecoin.

Private Keys:

If I loose my private keys it can be a big trouble. Private keys can be in "Seed Phrase" or like our "Private Keys" in steemit. There are two ways, first if I loose my private keys or seed phrases and second is if I accidently give these to someone, I will not be getting a good news then.

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# Conclusion: (Short Answer) These was some risks from many risks on DeFi. We have to be smart for using DeFi, then boom. Like if we want to buy any cryptocurrency like Bitcoin, Ethereum or else, we have to use trusted websites for the purpose, like Coinbase etc.

I am strongly feeling about positive for future of DeFi. We can get answer from the success rate of DeFi in nowadays, and it is much faster. Just if we want to enter in DeFi with any way of using it, we have to be smarter because it is digital world. We have to be cognizant and watch out while entering in DeFi world. If I want to invest my money here and I know that I could loose it all at any moment and I am okay with that.

Thank you all for reading. I will try to share something more interesting next time, inshallah.
@abdt!
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